The soaring demand for commercial real estate is setting records in cities around the world and drawing comparisons to the office boom in the mid-2000s. The Wall Street Journal reports that valuations of office buildings have hit record highs in major cities throughout the world, including London, Hong Kong, Osaka, New York, Lost Angeles Sydney, Berlin and Chicago.
Commercial real estate transactions during the first half of 2015 in the United States increased 36 percent from the previous year to $225.1 billion, according to Real Capital. In Europe, transactions increased by 37 percent for the same time period to $148 billion, the strongest showing since 2007.
Low interest rates and increased cash spur on demand for commercial real estate.
The demand for commercial real estate has been fueled by low interest rates and a flood of cash from central banks. Big US investors have increased the amount of real estate holdings, as well as investors from Asia and the Middle East. Some analysts are worried that the market may become overheated and lead to a bust, similar to the mid -2000s.
Recent trends show investments are coming from a variety of sources. Pension funds are pouring money into commercial property, with approximately 7.7 percent invested in property (up from 6.3 percent in 2011) according to alternative-assets tracker Prequin. Foreign investors are also acquiring a high volume of commercial real estate around the world, especially from China.
There is a debate about whether property values will fall if the Federal Reserve increases interest rates later this year. Property values may not be hurt if inflation continues to keep pace with any increase in interest rates. Analysts are more confident this won’t happen since the market has not been over built as was the case in the past.
Demand for office space drives capital investments in Charleston market.
The Charleston commercial real estate market has seen similar trends in commercial real estate investments as demands for office space remains strong in 2015. An improving economy and job market coupled with above average population growth is fueling the demand for office space throughout the Charleston region. Investment sales are receiving top dollar. In 2015 office sales totaled more than $70 million by the end of the third quarter. Developers are also investing in new construction as the demand for office space increases in Charleston. There is also a trend to redevelop and modernize older office buildings and warehouses.
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